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Capitalism In Question: Can 'Only Government' Save the Economy, As Obama Says?

Has the U.S. officially abandoned free-market capitalism? Is that the position of the incoming administration?

While giving the hard-sell to his economic stimulus plan last Thursday, President-elect Obama dropped a line that caused a head-snap among some of America's remaining free-marketers (ARFM).

"It is true that we cannot depend on government alone to create jobs or long-term growth," Obama said during a speech at George Mason University. "But at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe." [Emphasis added.]

Really? Do we all agree on that?

Even more amazing to economic conservatives is how easily most policy-makers and even taxpayers seem to be swallowing the premise, thanks to the deteriorating economy.

So The Ticker called a couple of ARFM to see what they thought of Obama's quote.
"All kinds of precedents have been set over the last six months -- really bad precedents, from my point of view," Chris Edwards, an economic scholar at the conservative Cato Institute, said in an interview on Thursday, ticking off a few precedents: "The Fed is doing things it has never done before. Treasury is doing things it has never done before. Congress voted against the auto bailout then the executive branch used its own slush fund."

The current financial crisis is doing more than just draining 401(k)s, throwing markets into turmoil, determining presidential elections and putting people out of jobs. It is causing Americans to question the very nature of U.S.-style capitalism.

Greed and short-sightedness have flipped our system upside down and Americans rich and poor are turning to the government for help. Each federal response, it seems, takes the economy one more step away from capitalism and toward nationalization.

In this feature -- Capitalism In Question -- The Ticker will take a hard look at these steps as a way to help us better understand what kind of economy we are becoming.

It is understandable that, in times of crisis, Americans turn to the government. Apart from your occasional militia member, most Americans would agree that makes sense.

But when Americans hope and expect the government to fix the short-term economy, they should place their trust elsewhere, Edwards said.

"I don't believe economists have a very good model of how to manage the short-term ups and downs in an economy," he said. "Economists share a good idea of what generates good long-term growth, but not short-term growth."

Which is why Edwards doesn't place faith in the $700 billion rescue/bailout and other government-funded fixes designed to try to get the economy moving right now.

Instead, Edwards favors entrepreneurship and business investment to fix the economy.

The Ticker asked Edwards: But you're talking about tens of thousands of individual businesses. How could you expect or mandate them to all move as one to stimulate the economy? Isn't the federal government the only entity that has the one big tap of money and the ability to turn on right away?

"No," Edwards said. "You could get business to act en masse if you cut the corporate tax rate. We have the second-highest corporate tax rate in the world."

If Congress cut the corporate tax rate, Edwards said, it would give a "signal" to all businesses that they can expand and invest without fear of punitive taxes, thus quickly stimulating the economy.

The Ticker asked J.D. Foster, senior fellow in economics and fiscal policy at the conservative Heritage Foundation, how he would rewrite Obama's quote, substituting a free-market solution for Obama's phrase, "only government."

Here is Foster's version of the quote with his substitution in brackets: "But at this particular moment, only [deep reductions in income tax rates, loosening of the shackles on America’s workers and employers, investors and savers, entrepreneurs and innovators,] can provide the short-term boost necessary to lift us from a recession this deep and severe.”

The Ticker asked Foster what it's like for one one of ARFM to watch the U.S. economy change before his eyes.

Like many, Foster is hoping that the nationalization of the economy is only temporary, thanks in part to growing overseas competition from more free-market economies, such as China.

"Right now, the nationalization is deeply unfortunate, however, necessary in some instances, but so far it is all apparently temporary and reversible," Foster wrote in an e-mail. "In this case, however, there is a powerful insurance policy against a permanent nationalization of significant new elements of our economy – the building economic giants of the emerging nations whose growing competitive prowess will exact an ever-increasing price from countries that persist in anti-competitive policies."

Read previous installments of Capitalism In Question:

- Why Is the GOP For 'Forced Restructuring' of Big Three?

- Can Or Should Government Prevent Bubbles?

- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  January 12, 2009; 12:46 PM ET
Categories:  The Ticker  | Tags: Capitalism In Question, Obama, capitalism, free markets, nationalization  
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